Competently negotiating the U.S. competent authority process

Tax Executive, The, May-June, 2007 by Kerwin Chung, Richard McAlonan

(1.) The U.S. Competent Authority cannot consider requests involving countries with which the United States does not have an in-force tax treaty. Although, the United States has in-force tax treaties with most of its major trading partners, notable exceptions are Brazil, Hong Kong, Singapore, and Taiwan.

(2.) In interpreting and applying tax treaties, the Deputy Commissioner (International), Large and Mid-Size Business Division, acts only with the concurrence of the Associate Chief Counsel (International). See Delegation Order 4-12 (formerly DO-114, Rev. 13), Internal Revenue Manual (IRM), Part 1 Organization, Finance and Management, Chapter 2 Servicewide Policies and Authorities, Section 43 Delegation of Authorities for the Examining Process (IRM 1.2.43).

(3.) IRM 4.60.3.1.7.

(4.) Treas. Reg. [section] 1.482-1(a)(3).

(5.) IRM 4.60.2.5.

(6.) Treas. Reg. [section] 1.901-2(e)(5)(i); Rev. Rul. 92-75, 1992-2 C.B. 197; Rev. Proc. 2006-54, [section] 11.

(7.) Rev. Proc. 2006-54, [section] 12.02(6).

(8.) Rev. Proc. 2006-54, [section] 6.

(9.) The revenue procedure governing the administration of the APA Program explicitly provides that the prefiling conference may be held with the taxpayer's name disclosed or on an anonymous basis. Rev. Proc. 2006-9, [section] 3.04, 2006-2 I.R.B. 278.

(10.) Rev. Proc. 2006-54, [section] 3.04.

(11.) Rev. Proc. 2006-54, [section] 4.04.

(12.) Rev. Proc. 2006-54, [section] 4.05.

(13.) Rev. Proc. 2006-54, [section] 4.02.

(14.) Id.

(15.) IRM 4.60.2.1.

(16.) Rev. Proc. 2006-54, [section] 4.02.

(17.) Rev. Proc. 2006-54, [section] 9.03

(18.) Rev. Proc. 2006-54, [section] 9.01.

(19.) Rev. Proc. 2006-54, [section] 9.05.

(20.) Rev. Proc. 2006-54, [section] 9.02.

(21.) Rev. Proc. 2006-54, [section] 4.09.

(22.) Rev. Proc. 2006-54, [section] 4.08.

(23.) Rev. Proc. 2006-54, [section] 7.01

(24.) Rev. Proc. 2006-54, [section] [section] 7, 8.

(25.) Rev. Proc. 2006-54, [section] 3.03.

(26.) Rev. Proc. 2006-54, [section] 7.06.

(27.) The data shown in this table was provided by Frank Ng, Deputy Commissioner (International), LMSB, during a panel discussion as part of the 19th Annual Institute of Current Issues in International Taxation on December 14, 2006.

(28.) Rev. Proc. 2006-54, [section] 10.

Kerwin Chung and Richard McAlonan are the co-leaders of Deloitte Tax LLP's Advance Pricing Agreement and Competent Authority Team. Mr. Chung received his J.D. degree from Harvard Law School and his B.B.A. degree from the University of Hawaii. Mr McAlonan was a senior team leader with the Internal Revenue Service's Advance Pricing Agreement program (1995-1998). He received his M.S. Degree in Tax from Pace University and a B.S. degree in Accounting from Villinova University, and is a certified public accountant. Copyright[c] Deloitte Development LLC 2007. The authors may be reached at kechung@deloitte.com and rmcalonan@deloitte.com.

TABLE A:
Inventory--Allocation Cases Only

          U.S. Initiated        Foreign Initiated

Fiscal                                              Year End
Year    Received   Disposed   Received   Disposed   Inventor

2002       31         60         63         44        223
2003       28         29         68         62        228
2004       23         35         63         66        213
2005       34         47         75         76        199
2006       31         38         78         94        176

Table B.

Notification Deadlines Counted from the End of
the Taxable Year to Which the Case Relates

                      Time Limit to Notify
U.S. treaty partner   Competent Authorities

Canada                6 years
Netherlands           6 years
Turkey                5 years

Table C.

Taxpayer's Action Deadling Counted from the Tax
Return Filing (Due) Date

U.S. treaty partner   Time Limit to Notify
                      Competent Authorities

Mexico *              4.5 years

Table D.

Taxpayer's Action Deadline Counted From
Notification of Action Causing Double Taxation

U.S. treaty partner   Time Limit to File
                      Competent Authority Request

Australia             3 years from notification
China                 3 years from notification
Czech Republic        3 years from notification
Estonia               3 years from notification
France                3 years from notification
Germany               4 years from notification
India                 3 years from notification
Indonesia             3 years from notification
Japan                 3 years from notification
Latvia                3 years from notification
Lithuania             3 years from notification
New Zealand           3 years from notification
Portugal              5 years from notification
Slovakia              3 years from notification
Slovenia              5 years from notification
South Africa**        3 years from notification
Spain                 5 years from notification
United Kingdom        3 years from notification or 6 years
                      from the end of the taxable year in
                      respect of which the taxation is
                      imposed or proposed

Table E: Success Rates in Eliminating Double Taxation)

                  2002      2003      2004

Correlative
Adjustment        40.7%     36.6%     28.7%
Adjustment
Withdrawn         29.2%     55.3%     64.4%

Full Double
Tax Relief        69.9%     91.9%     93.0%

Partial Relief    29.1%     5.7%      2.3%

No Relief         1.0%      2.4%      4.7%

                                      5-Yr.
                  2005      2006      Avg.

Correlative
Adjustment        50.6%     53.8%     42.0%
Adjustment
Withdrawn         37.6%     28.6%     43.0%

Full Double
Tax Relief        88.2%     82.4%     85.0%

Partial Relief    9.6%      4.4%      10.2%

No Relief         2.2%      13.2%     4.8%

Table F: Processing Time on Closed Allocation
Cases (Average Days)

Foreign
Fiscal Year   US Initiated   Initiated   Combined
2002              949           946         948
2003              986           801         860
2004              1105          855         941
2005              942           784         845
2006              634           797         750